Accrued Interest

The term Accrued Interest is described as the dollar amount of money currently owed on a loan that has accumulated for the time use of the money that has not yet been paid back to the lender. Accrued Interest is an accounting term that describes interest that is due and owing on a loan that has yet to be paid by the borrower. Interest rates on any particular loan are adjusted to reflect a certain degree of risk.Typically, the higher the degree of the risk for a particular loan, the higher the interest rate will be. With respect to a real estate transaction where a buyer (borrower) of real property takes out a loan to make his or her purchase, he or she typically makes monthly payments on the loan at a certain interest rate if the loan is a fixed interest loan broken down into principal and Accrued Interest on the principal amount. With each month’s timely payment by the borrower in a real estate transaction the amount of the principal owed gets paid down to an extent in relationship to the ratio interest paid on the declining principal amount of the loan. Until the interest has been paid on a real estate loan, such interest is considered Accrued Interest in the real estate industry. Accrued Interest can be recognized on a security but has not yet been received by the lender.